KAPLAN COLLEGE GUIDE

Brand Name or Investment?

Sticker shock: it's really both. Families who pay huge bills for college educations can take some consolation knowing the degrees yield lifelong dividends.

By Daniel Gross | NEWSWEEK
Published Aug 18, 2008
From the magazine issue dated Aug 18, 2008

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  • Posted By: jmagreill @ 08/23/2008 11:41:13 AM

    Well this article convinced me the degree is not worth it. Taking the $100,000 typical cost for 4 years of college and investing at 8% long term-dividends reinvested: Rule of 72 will double every 8 years. From age 21 to 66 retirement is 45 years or 5 "doubles" the 100,000 will grow to 3.2million and far exceed the value ot the extra $800,000 earned over the same period.

    • Posted By: cajademierda @ 08/29/2008 3:46:30 PM

      Yeah thats an interesting point. Lets ignore the 800k thing for now and just look at the incomes mentioned. If say you make 31500 for 34 years, you get a present worth of 364K (using 8% interest, ignoring inflation). If you make 50900 for 30 years, and spend 100K on school, you get a present worth at age 18 of 347K. (I'm ignoring the intracacies of when the college tuition gets paid, and also the earnings potential of the student during college). By those numbers it looks like college isn't worth it. Of course not everybody drops 100K on college, and most people work for more than 30 years after college (~age 52). Though even at age 62, the college grad still loses 380k to 372k, so even if you drop 90K on college (very easy to do these days) you break about even. 8% over inflation is probably reasonable for the long term stock market (S&P averages 11% above inflation), but may be an aggressive rate of return for a calculation like this. At 5% over inflation (really not aggressive at all for investments) and working until 62, the college grad wins 636K to 556K (or 561k to 510k retiring at 52). There's obviously a lot of other stuff to consider. The actual income/time curves would be better than just the averages, and there's obviously tax consequences to the college grad with their higher salary. Also, if the highschool grad bought a house pre housing boom while the college grad was living in a dorm, that's a hefty untaxed capital gain to recieve early in life even if it was a cheap house. And the college grad may develop critical thinking skills (like the ones that allow guys like us to debunk Newsweek articles) that make him some money or allow him not to fall for some scam, or maybe not. The bottom line I guess is that you can certainly come out ahead either way and college isn't necessarily worth it for everybody.

      Back to the 800k, is that supposed to be a future value invested at some interest rate, a present worth, or just some interest free sum of the differences in salary over a career. I'm leaning toward the latter even though its kind of a pointless figure to calculate.

    • Posted By: kittymalicious @ 08/24/2008 8:40:23 PM

      The issue with this would be that most people won't have $100,000 to invest in one block sum, and you can hardly take out a loan of $100,000 to turn around and invest (much less at the low interest rate of an educational loan). I don't think most people are sitting on that kind of cash thinking, "Do I buy myself a degree or invest all this money instead?"

  • Posted By: kevjohn @ 08/22/2008 8:59:28 AM

    "the average person who graduates college is smarter and more talented than the average person who just graduates highschool."

    I love it when folks just hop on the Internets and make up "facts". Some of the dumbest people I know are college graduates. I think we're way past the point of being able to ASSume being able to get a college degree directly correlates with intelligence. Hell, George W. got degrees from Harvard AND Yale.

    • Posted By: cajademierda @ 08/29/2008 2:34:40 PM

      I love it when people use anecdotal evidence to try to prove a point. Everybody knows some idiot with a college degree or some smart guy who never went for whatever reason. Are you seriously disputing that the average college graduate has more inteligence and talent than one who simply graduates highschool? The fact that top highschool graduates overwhelmingly go to college and graduate versus mid level highschool graduates who don't proves that at the very least the college graduates are more academically adept than their lesser achieving counterparts since they beat them in the class ranks in highschool. Most people would chalk that up to intelligence and/or talent.

  • Posted By: Tea6 @ 08/23/2008 1:16:27 PM

    The college degree has become the new high school diploma.

    So much for the argument of those who say all America needs is more education.

  • Posted By: techie22 @ 08/22/2008 2:24:58 PM

    If you want to make money in business,
    it's not what you know but who.

    Deals are made based on loyalty to
    their friends but they will crucify anyone
    who is not part of their "Club".

    The playing field is not even and those
    without an Ivy league education shouldn't
    even try. Maybe this is just in recent times
    but unfortunately I don't think that's the case.

  • Posted By: NDMP @ 08/22/2008 12:29:19 PM

    I've always viewed my college degree as the proverbial "foot in the door" ... nothing more, nothing less.

    The fact that I like what I do means that I (arbitrarily) add some value to my degree, but at some point that degree simply costs too much and I'm working at McD's ... pretty straight-forward cost/benefit analysis from my point of view.

  • Posted By: momof8 @ 08/22/2008 9:04:45 AM

    This assumes that the people who graduate will have a degree worthy of the 6 figure income. Not true for teachers or social workers. Don't get me wrong I have 4 of 8 graduate college already but as a homeschooler I also believe that college is not the only way to go. Everyone needs a skill that will carry them through their life with joy but as the commenter said an intelligent plumber is worth their weight in gold. husband we

  • Posted By: ScottSov @ 08/22/2008 8:42:36 AM

    Are you counting Bill Gates and his financial empire for those non-graduates?

  • Posted By: kittymalicious @ 08/20/2008 9:36:37 PM

    I don't think the author of this article has considered what happens when a state university graduate is in the same interview room as 15+ other students from Ivy league and top tier universities. Or when students try to get into a good graduate school (the bachelors degree is so run-of-the-mill in todays competitive job recruitment) and realize the preferential treatment given to those with legacy and alumni status. You know how firms scramble to pick up any student graduating from the Harvard/Yale/Stanford Law schools? That doesn't happen at your local state school either.

    The average college experience may be like a "consumer product" but when you get to the level where the "product" picks you and not vice versa (when I applied for colleges, I competed to get into Ivy League while state universities/liberal arts colleges courted me--and I would have profited from the overflow of scholarships at those schools rather than having to take out student loans like I do now), you know you're talking about a completely different playing field.

    • Posted By: heytonester @ 08/21/2008 12:43:53 PM

      You have poor grammar. How unfortunate.

      • Posted By: kittymalicious @ 08/21/2008 11:52:14 PM

        English is my fourth language. What's your excuse?

  • Posted By: cajademierda @ 08/21/2008 12:46:32 PM

    Like most of these kind of articles, this one makes the mistake of comparing average salaries of college graduates and people who only graduated highschool. This is a pointless comparison as the average person who graduates college is smarter and more talented than the average person who just graduates highschool. A proper comparison looks at equal opportunities, ie examining the situations of people who just made it into college and decided whether or not to go. Very few who could actually get through medical school or engineering school or any other difficult but high paying career path are considering becoming a janitor instead. Someone who barely got into college probably won't graduate with a good GPA (and may not graduate at all for that matter), and probably won't get a great starting salary. That person is probably of above average intelligence though, and if they were to skip college and be a plumber they might find they're one of the smarter plumbers out there, and thus more likely to start and run a successful plumbing business making much more money than some below average corporate drone.

    To summarize my point: If you are really smart, definitely go to college, if you are really stupid, don't waste your money, but if you are borderline, and thus one of the people who actually should think about whether college is worth it, the comparison of average salaries is going to give you an inflated potential return on your tuition. For the average highschool grad it may be worth going to college. I don't know, I haven't studied it, but just know that simply comparing average salaries is not a good way to decide whether or not to spend 100K and 4 years of your life.

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